President and Chief Executive Officer, Oettinger/Davidoff Group

Dr. Reto Cina: I was running a discount chain
called Pick Pay in Switzerland for ten years. Part of their assortment was
cigarettes. Oettinger Imex was running the wholesale cigarette business of
Pick Pay. So through this business relationship, I got to know these
people, and in 1995, I got a phone call from the managing director of
Oettinger Imex asking if I would be ready to join as CEO of the
Oettinger/Davidoff Group. And I said yes, of course. We let quite a long
time pass, almost one year after the first meeting, but I got to know all
of the family members, because at that time, the Oettinger Imex Group was
still owned by three families. This has now changed -- there is only one
family owning the whole thing -- the Schneider family.

Q: Did you deal with Oettinger chairman Dr.
[Ernst] Schneider in the negotiations to bring you into the company?

A: Directly with him. Formally speaking, it
was the vote of the directors who gave the final OK, but as a matter of
fact, it was he who said, 'I want to go with it.'

Q: I've heard that things tend to move
kind of slowly at Davidoff, or with the Group. Did you think it was unusual
for an entire year to go by between being hired and the meetings?

A: Certainly, it isn't unusual. But I
wasn't under pressure at all because I had a good position. It may be
a Group thing, that you let pass a little while to really get the feeling
whether two characters may get along together or not. So I think it was a
good idea. Obviously, it was the right decision for both sides.

Q: Let's talk a bit about the company
in general, because I think all of our readers know about Davidoff, but
very few know about Oettinger. Could you describe the company?

A: Actually, we are in four fields of
activities. We are a producer, we have an import and export business, we
are in the wholesale business and we are retailers. The company is divided
into three divisions: tobacco products, accessories and confectionery,
which includes cigars; diversification, which are all the other brands,
such as cosmetics, leather goods, writing instruments, glasses, ties and
Cognac; and, of course, cigarettes.

Q: How large a company, in terms of annual
revenue, is the Oettinger/Davidoff group?

A: The tobacco products, accessories and
confectionary division comes to 910 million Swiss francs ($717 million),
cigarette licensing is 1.2 billion ($946 million), and diversification is
501 million ($395 million). The number of employees is 2,600. Outside of
the Dominican Republic, most of them are in Germany, with more than 800.

Q: Where do you sell Davidoff cigarettes?

A: Only in Switzerland, plus we have some
distributing rights for other cigarettes; for instance, we are the
distributor of the American Spirit cigarette -- in Switzerland, in
Belgium and in Holland -- but it's a tiny thing. In addition to
that, we are the importer for Zippo lighters, for Savinelli pipes and so
on. Having our sales force selling our own brand together with these
imported products makes the portfolio much more attractive, and delivery
costs come down with the percentage of the value of the order. By using our
infrastructure to the utmost, signing the same customers and adding up
other products, we are able to generate additional margins.

Q: What about your fragrances?

A: We have them made, but we are doing the
whole thing: the advertising, the distribution and everything. For
cosmetics, Lancaster is our licensee. For Cognac, it is Hennessy, and so
on.

Q: What is the breakdown of stores that you
own?

A: We started, years ago, buying tobacco
retailers in Switzerland because we were aware that sooner or later we
would have the situation that this retail business would no longer be
attractive. We would have less retail shops and we had to have an outlet
where we can promote our own brands. At the end of the day, the retail shop
will be the only place where you can promote your products. Having the full
vertical integration coming from production, wholesaling and also
controlling the retail business, we have 100 percent control.

There are 48 Davidoff flagship, or pilot, stores
worldwide. These are stores that carry the Davidoff logo on the storefront
and feature the entire Davidoff product range, from cigars to fragrances to
Cognac and other Davidoff products. Among them are the Madison Avenue store
and the newly opened shop at Columbus Circle in New York, four in Las
Vegas, seven others in North and South America, 18 in Europe, 16 in Asia
and one in the Middle East. Of these flagship stores, Davidoff owns eight.
The remaining 40 are franchised. In addition, we have 150 shops in Germany,
26 in Switzerland, two in Belgium and two in Holland. These carry a variety
of Davidoff and other brands.

Q: How is the cigar business divided between
countries?

A: First, the biggest market is still the
U.S., with slightly more than 20 percent, followed by, changing from one
year to the next, three countries: Germany, France and Spain. One year
France is in the second position, the other year it is Germany, and so on.
The fifth is Switzerland, followed by Turkey, then all the rest.

Q: Are there some cigar brands in your
portfolio that maybe do great in one country, but aren't spectacular
in others?

A: Yes. I mean, let's take Avo.
It's a really big brand in the U.S. It's doing well in Germany
and Switzerland and in other European countries, but honestly, in the Far
East, where we are really successful with Davidoff, we have a hard time.

Q: Why?

A: In Asian countries, people are looking for
the big names. And it is much easier for us to get them buying a Davidoff
cigar than an Avo. That is certainly a reason why it is so difficult to
start new lines throughout the world. It's a hard thing.

Q: During your tenure as CEO of the Group, it
seems as if Davidoff has become considerably more aggressive in coming out
with new cigars. Is that accurate?

A: We have always been known for excellent
quality, no doubt about it. But the launching of new products was certainly
not at the level it is now. Of course, at the time, this need for new
products was by far not as important as it is nowadays. But I believe that
also we were taking, in a rather short period of time, a big step forward,
opening, first of all, new avenues in promoting cigars with Avo in
Switzerland, for instance. Also within the Davidoff brands, we are
launching new products at a quite different level.